This article pretty much follows the headline. I mean, seriously, stop trying to retire at 27. The entire “FIRE” movement has gone from a realistic early retirement mindset, to, “if I live in a bus and eat earthworms, how soon can I retire?” mindset. This is crazy. Stop it. Now. Oh yeah, we are so passionate about this that it’s our second article of it’s kind.
But I’m ready… I sacrificed so much and I made it!
Okay, I’ll play along. Let’s say you get an ultra high paying job at 21 after graduating from Harvard. You spend the next six years saving every penny of your income. You eat top ramen, you have never been inside of a coffee shop, let alone a bougie one, your friends can’t text you because you have a Nokia cell phone… and you manage to amass $1MM at the young age of 27. Great work! I am seriously happy for you, this dedication has certainly set you up for success. BUT… let’s talk about why retiring immediately might not be a prudent decision!
Your worst enemy: inflation
Even a brilliant saver, investor, and thrift artist cannot completely beat the beast known as inflation. In 2021, the Consumer Price Index (CPI), a metric that is used to measure the overall cost of specific goods in the United States, rose approximately 7%.
So let’s say 2021 was the first year of your “retire at 27” plan. This is a horrible start. If you were staring at $1MM in savings, you are now looking down at approximately $930,000 in purchasing power. Yes, there is a case to be made that you lost $70k due to inflation. Now that could be overstated, considering the CPI gives different weight to different categories. Example: the price of oil may be really high but you ride a bicycle everywhere. You clearly wouldn’t experience this portion of inflation. But nonetheless, you’ll feel some of it.
Additionally, the stock market hasn’t done too well since December 2021. If most of your assets were stock market investments, which a good portion would need to be in order to FIRE, you would be hurting in that respect as well.
Life expectancy is not always your friend
Let’s say your life expectancy is 80. That’s fairly reasonable, although one could certainly make the case for a longer one by year 2100. That leaves you 53 years of retirement. If you spread the $1MM out to last over 53 years, assuming a 5% investment return, you will withdraw roughly $36k the first year. Increasing the withdrawals by 2% per year to try and pace inflation, you will withdraw $101k in year 53, at which point you’ll presumably have no money left. Great work, you successfully limited “working for the man” to only six years! I am definitely envious of you for that. But, what if you live until 100? Will your money make it?
Other miscellaneous issues
There is no doubt that it is possible to retire super-early. But, life can throw you some curve balls that make it much, much more difficult.
- Good luck having kids, those little boogers are expensive!
- If long periods of bear market conditions exist, your plan is absolutely wrecked unless you have a sufficient real estate holding or other cash flowing assets
- Your skills will become stale, whatever they are
- Retirement won’t be that much fun, as all of your 27 year old friends will be WORKING
- How much TikTok can you watch… seriously?
- You may like your 1999 Honda Civic right now, but will you like it in 2068 when I’m flying around in a Tesla land/air/water cruiser?
- How do you control increasing rents if you don’t own? If you do own, how do you plan for increasing taxes & insurance?
- How do you plan for health expenses until age 65 when Medicare kicks in?
- What happens if you get diagnosed with cancer or another major medical condition?
This is a list of questions/concerns I compiled in about 12 seconds. I can come up with several more if I have a cold glass of whiskey and a cigar. It should be slightly alarming that the list of “cons” flows so freely. What are the “pros” of retiring at 27? I can’t come up with many outside of “freedom” whatever that means in this context.
Sequence of returns risk
Not many people know what this is, and that’s not a good thing. According to Investopedia, sequence (or sequence of returns) risk is the danger that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor. In a nutshell, this means that the timing of your withdrawals could create extra losses in retirement. Example: you decide you’re going to take your first quarterly payment of $12,500 on January 1st, then subsequent payments of $12,500 on April 1st, July 1st, and October 1st. You’ve now withdrawn $50k from your accounts. If the market has declined 20% in the year in which you took these withdrawals, your $1MM nest egg could now sit around $760k. Now, if you factor in the inflation we talked about earlier, that takes another ~7% right off the top, leaving you around $707k. How would you feel if your savings went from $1MM to $707k in the first year of retirement? This is bad enough it could get Michael Jordan to return to work.
What you can do instead
To be clear, I’m very supportive of someone’s desire to retire early. I mean, seriously… I would love to have enough money to hang it up tomorrow afternoon and spend my days at the golf course, shooting range, or yacht club (wishful thinking). But I can’t, because I’m not going to starve myself of any type of enjoyment in order to say I retired in my early 30’s. This is crazy and I’m not going to pretend otherwise. Now if you win the Mega Millions jackpot at $257MM, or create some earth-shattering tech that sells for $37MM at age 23, or your father is a global real estate tycoon and leaves you $100MM upon his death, fine. Retire early. You are clearly capable and none of the concerns I mention above apply to you. In fact, I’d be willing to wager you could find a spouse and kids REALLY quickly with this kind of money.
Instead of trying so hard to retire early, why don’t we try and do two things simultaneously: live our best life now and prepare for an EARLIER retirement. My wife and I work very hard now for these two reasons exactly. We enjoy having fun today, and we want to have fun tomorrow. We will continue to do this until the time comes to pull the retirement trigger. If this is age 52, so be it. 57, fine. I guess the main point here is to avoid rushing it. God willing, we’re all going to spend a lot of time here and some of that time should be spent doing things we enjoy! Good luck on your journey!